When I think about global stock markets these days, the image that springs to mind is the final scene of The Italian Job – the iconic 1969 original, not the tacky 2003 remake. “Hang on a minute, lads,” says Charlie Crocker, Michael Caine’s heistmaster-in-chief, as he and his rogue brethren balance precariously in a bus loaded with gold on the edge of an Alpine cliff. “I’ve got a great idea”.
The film ends ambiguously, of course. As the credits roll, viewers are left guessing as to whether the gang gets the loot and to safety, or plunges into the depths of a rocky ravine. Well, I’m similarly ambiguous about the state of global markets and the related prospects for the world’s large economies, not least the UK. It strikes me, in fact, that the whole economic shebang is balanced on a knife-edge.
“Storm clouds gather over emerging markets”, boomed The Financial Times’ influential leader column in mid-January. This inclement headline was whipped up after the paper choose to focus on a “disorderly adjustment scenario” outlined across just a few paragraphs of the latest edition of The World Bank’s Global Economic Prospects. The 150-page tome is, in large part, about the Western world, not emerging markets. The question at its heart is whether the “advanced” economies, having remained sluggish since the 2008 sub-prime collapse, are now staging a proper return to growth.
“For the first time in five years,” reads the opening lines of the World Bank’s report, “there are indications a self-sustaining recovery has begun among high-income countries – suggesting they may now join developing nations as a second engine of global economic growth”.
Economies across Africa and Asia, in other words, along with the emerging markets of Latin America and BNE’s home region of Eastern Europe and Eurasia, are performing quite well. These nascent capitalist societies are the “engine of global economic growth”, says the World Bank.
Back in the spring, Ben Bernanke told the world that “tapering” would start “later this year”. The Federal Reserve Chairman was indicating, in other words, that America’s central bank would start to wind-down its $85-a-month money-printing habit by the end of 2013.
Such an outcome now looks increasingly unlikely. My view, in fact, is that the Fed, could soon unleash more, not less, quantitative easing – ramping up the policy rather than tapering. Such an outcome, were it to happen, would be incredibly risky. Speeding up monetary stimulation, rather than slowing it down, could spook financial markets – and even cause a panic. Yet in recent weeks, I’ve heard several well-placed economists and policy-makers, especially in the US, start to contemplate such action.
“As a practitioner of markets, I love this stuff,” said Stanley Druckenmiller. “This stuff is fantastic for every rich person. It’s the biggest distribution of wealth from the poor and the middle classes to the rich ever.”
Druckenmiller is among Wall Street’s most fabled investors. He started Duquesne Capital in the early 1980s then teamed up with George Soros, running the legendary Quantum Fund. Together they made billions by “breaking the Bank of England”, shorting the pound in massive volumes and forcing sterling out of the Exchange Rate Mechanism. That was in 1992.
The quotation above is more recent. Druckenmiller said these words on CNBC television last Thursday and the “stuff” was quantitative easing. While extremely critical of America’s $85bn-a-month money-printing habit, Druckenmiller is at least decent enough to acknowledge that, as a wealthy chap with a bucket-load of equities, the Federal Reserve’s asset-buying programme has made him even richer.